Why Water Recycling is So Critical for Energy Companies

One of the big issues many have with fracking is the massive amount of fresh water required to frac each well. In some cases the process uses upwards of five million gallons of water per well. That is a lot of water, and for perspective the average golf course uses about four million gallons of water to irrigate the course every three weeks. While there are more than 17,000 golf courses in the U.S. that need to be watered, water is a much bigger problem for the oil and gas industry. Overall, access to fresh water is such an issue that oil and gas producers are looking to increase the amount of water that is being treated and recycled so it can be used again to frac new wells.

That trend could become even more important in the future because some producers are finding that by using more water and proppants to frac a well the results are even better. It is that increased use of water that could provide an even greater opportunity for the water recycling partnership that has recently developed between Halliburton (NYSE: HAL) and Nuverra Environmental Solutions (NYSE: NES) .

This trend to use more water per frac actually flies in the face of what some analysts had worried about, namely that producers will start cutting the amount of water used to frac each well in order to reduce costs. Instead, what Nuverra is seeing is not a decline in the millions of gallons used to frac each well, but in the case top customer Whiting (NYSE: WLL) , in particular, it is currently working on fracs using more water, which is producing superior results. Whiting had been known for using less water than its peers, however, if that trend of increased water in fracks catches on it will only strengthen the notion that producers need to double down on the effort to use recycled water.

Overall, increasing the volume of what's pumped down a well to frac it is gaining momentum. For example, producers like Pioneer Natural Resources (NYSE: PXD) are finding that increasing the volume of sand proppants used in each frac is leading to more desirable results. CEO Scott Sheffield recently said on the company's last conference call that, "The results look very positive, though, to basically pump more proppant. That's getting pretty clear to us. And so that's, I think, the direction we're going."

Now, it would appear that proppants aren't the only item producers are using in increased volumes to frac wells. This is both a problem, and an opportunity. The problem of course is that the industry already uses a lot of water, however, that just opens up the opportunity for it to recycle more water. In fact, with estimates of upwards of 50,000 future wells in the Bakken alone, up from just a few thousand today, this represents a massive amount of water that could be recycled.

This is why the partnership between Halliburton and Nuverra is so important for the industry. Not only does Halliburton believe it can save Bakken producers up to $400,000 per well, but it would save valuable fresh water as well. In fact, its goal is to have the industry use 25% less fresh water next year, even as more wells are drilled with the potential of more water being used for each frac job.

The bottom line, with the industry likely to use more water to frac each well, it is critically important for it to recycle water to meet this need. This is why the solution put forth by Halliburton couldn't come at a better time. It also means that both Halliburton and Nuverra make for a compelling opportunity for investors looking to cash in as these two solve this crucial problem.

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Fool contributor Matt DiLallo owns shares of Nuverra Environmental Solutions . The Motley Fool recommends Halliburton. The Motley Fool owns shares of Nuverra Environmental Solutions and has the following options: long January 2014 $4 calls on Nuverra Environmental Solutions and short January 2014 $3 puts on Nuverra Environmental Solutions . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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I am short NES. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I would be quite biased to the negative if I was shorting a stock. Good eye openers in the mentioned article though

What is anyones take on the article published over the weekend that spoke very negative about NES?

It appears to lack substance.

My personal take is that there is not much of a push by government authorites on the critical nature of using an abudant supply of water in fracking. Water is one of our most cheerish resources and it appears there is not much interest amongst our government authorities. I would think that this would be a no brainer. It appears they are waiting for a dire shortage of water and then that might get their interest.

No substance? Please shed some light on your perspective. The article was full of substance granted you have much knowledge into the industry. I can't think of one point that wasn't covered. I would thank the guy for the insight.

I'm actually banking on an on known company with entirely different technology in recycling water called ABTECH. Ticker symbol ABHD. They're now getting the attention they deserve with their first, of many more to come, contract of $12 million.

Water recycling is and will be very important. Problem is, it's not a 40% margin business. They will be lucky to maintain 20% margin in the long-term. The industry is very cyclical so when the next bust comes along NES is a goner with their debt load.

I haven't read the SA article but given what the stock did today I'll dig into it and see what spooked everyone. However, something that everyone must keep in mind is that "if you torture that data long enough it will confess to anything."(anon as far as I know) So, if the author wanted you to see a default risk (for his own gain) then that's what you'd see.

This article details the issues with increasing the amount of water and proppants used in fracking very diligently. However, the author wrote this article like it was a text to his friends. Please do not use condensed language while writing in a magazine or journal, it is insulting and shows you lack of intellect. So, without sounding too lugubrious, be less candid and more respectful to the language of professionals. Thank you. Hence, be less foolish and you will not be considered a fool...

I believe a Canadian company is using 'brackish water" to do their fracing. Brackish water is high salt, high mineral content that forgoes the need for sand, fresh water and recycling. Can't remember it's name, sorry!

PureSafe Water Systems (PSWS)(www.puresafewatersystems.com) might be another player that could potentially cleanse water used in fracking. Certainly can be used in foreign countries to clean contaminated water. Check it out.